STOCKS CLIMB TO NEW RECORD HIGHS: Here's What You Need To Know

Markets were higher despite a disappointing revision to first
quarter U.S. GDP that showed the economy shrank by 1% during the
quarter. The S&P 500 made an all-time closing high for the
third time in four trading days, and also took out its prior
intraday record high.

First, the scoreboard:

Dow: 16,698.7 (+65.5, +0.3%)

S&P 500: 1,920.0 (+10.2, +0.5%)

Nasdaq:
4,247.9 (+22.8, 0.5%)

Top stories of
the day:

The U.S. Bureau of Economic Analysis' second
estimate for first quarter GDP was revised to a 1.0% decline
from the first reading of 0.1% expansion. Capital Economics' Paul
Ashworth said, "first-quarter contraction was quite
obviously due to the unusually severe winter." Ashworth added,
"[T]he incoming monthly data already point to a marked
turnaround in the second quarter. For those worried about a
recession, it's worth remembering that employment increased by
nearly 300,000 in April and jobless claims dropped to 300,000
last week. Those numbers point to a recovery gathering some real
momentum at last. We still expect second-quarter GDP growth to
come in close to 3.5%."

Weekly
initial jobless claims fell to 300,000 from 327,000 a week
ago, which was also lower than the 318,000 expected by
economists. In a note to investors, Pantheon Macro's Ian
Shepherdson said, "Last week's claims were revised up a trivial
1K. This report is more important than the GDP numbers, in our
view, because it strongly supports the idea that labor market
conditions are improving markedly, despite weak headline growth
during the winter. The eight-week moving average - a better
indicator of the trend than the four-week average - has now
dipped to just 316K, the lowest level since August 2007, and
down sharply from 340K at the turn of this year. Over time,
every 10K drop in claims is consistent with payroll growth
accelerating by about 25K, so the drop in claims, if sustained,
ought to be accompanied by payroll growth closer to 250K than
to last year's average, 194K. That's not compatible with 2.44%
10-year yields."

April pending home sales grew 0.4% month-over-month, short
of the 1% rise that had been expected. Against the prior year,
April sales fell 9.4%, which was worse than the 8.7% decline
expected by economists. Following the report, Barclays said,
"Pending home sales in the US rose 0.4% m/m in April, softer
than we (+2.0%) and consensus (+1.0%) were expecting.
Nevertheless, pending home sales are now up for two consecutive
months after declining the previous eight months... The
stabilization and modest rise in pending home sales in March
and April suggests that existing home sales are likely to move
modestly higher in the coming months. This is consistent with
trends in housing starts, building permits, NAHB sentiment, and
new home sales that show the housing sector gradually gaining
momentum at the end of Q1. Altogether, the bulk of housing data
points to a slow recovery in the sector following the
successive shocks of higher mortgage rates and worsening
affordability last year and adverse weather this year."

The U.S.
10-year Treasury note continued to trade around its low of
the year, falling as low as 2.40%. Brean Capital's Peter Tchir
circulated a report examining some of the theories as to why
bonds have been in rally mode. Among the theories Tchir addresses
are a short squeeze in treasuries, too many investors remaining
underweight bonds, and the ECB, which is expected to cut rates at
its June 5th meeting.